MUMBAI (Reuters) - Suspected RBI intervention hauled the rupee off a record low struck on Tuesday afternoon, reassuring a market worried by the central bank's earlier inaction as the currency's fall gathered pace.

Striking 58.98 per dollar at its weakest, the rupee had plunged 3.25 percent this week, notching record lows for two consecutive days.

Dollar-selling by state banks, believed to be acting at the behest of the central bank, prevented a fall though the 59 per dollar level, though intermittent bouts of dollar selling by exporters had also slowed the fall.

The partially convertible rupee recovered to close at 58.39/40 per dollar, but it was still 0.4 percent weaker than Monday's close of 58.15/16.

"Finally the central bank stepped in. The selling was not huge, but enough to cause a rebound in the rupee," said a senior dealer with a state-run bank, who declined to be identified given the sensitivity of the matter.

Comments from senior government officials had offered little comfort to investors until stronger comments came on Tuesday, immediately following the talk of central bank intervention.

The government, the RBI and the SEBI will take "warranted" action to stall a sharp fall in the rupee, the Finance Ministry's chief economic adviser Raghuram Rajan said on Tuesday.

He also added that oil companies had agreed to stagger dollar purchases as much as possible to reduce pressure on the rupee, which would mark an important move, considering these firms are the biggest domestic buyers of the greenback.

However, the market continues to remain jittery.

"The rupee has rebounded today, but the market continues to remain nervous," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.

"There is not much exporter selling even now. I expect 57.70 to 59.30 range for the rest of the week," he added.

Analysts believe pressure on the currency had intensified after comments on the limitations of currency intervention by Reserve Bank of India Governor Duvvuri Subbarao on Friday.

Subbarao said a failed defence of rupee can be worse than no defence, and reiterated that the central bank intervenes in the market only to manage volatility.

"Fundamentally, INR will continue to depreciate because of CAD (current account deficit), but this move has happened too soon and too fast," said Samir Lodha, managing director at QuantArt Market Solutions.

Analysts noted that while foreign institutional investors (FIIS) were still net buyers of debt and equity so far in 2013, the risk that they could turn sellers could force the central bank to intervene to at least moderate the volatility.

"Technically, the rupee has made a short term low of 58.98 levels, from these levels, we expect a correction till 57.50-57.25 levels but the overall view still remains bearish," said Abhishek Goenka, chief executive at India Forex Advisors.

The weakness in the rupee has prompted investors to exit their positions in the debt market while the domestic equity market is also under selling pressure.

The rupee has dropped in 16 of the last 18 trading sessions and is down 7.9 percent since the start of May. The currency has been the worst performer in Asia since the start of May.

The fall in the spot rupee was also exacerbated by the large long dollar positions being built in the offshore non-deliverable forwards market, traders said. Indian rupee NDFs were pricing the rupee at 61.89 in a year's time, 5.7 percent weaker than the spot rate of 58.39.

"Any respite for the INR from some possible bunched up FII debt and FDI inflows this month will be temporary," said Rajeev Malik, senior economist at CLSA in Singapore.

"Barring volatility, the INR will eventually weaken to cross 60/USD in a sustained manner. Admittedly, this is playing out sooner than we expected because of the earlier change in the global backdrop," he added.

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